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Will Russia be disconnected from SWIFT?

Alex Ivanov. Moscow Correspondent

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The sanctions offensive against Russia by the West is not only not weakening, but is taking on new forms. Now we are talking about the prospects of using the SWIFT system. At the same time, not the United States alone, but also in Europe, there are threats heard to disconnect Russia from SWIFT, the global interbank communication system. Recently the European Parliament called for tough, co-ordinated measures, writes Alex Ivanov, Moscow correspondent.

How serious is this threat and what can be its real consequences for the Russian economy?

More than 11 thousand organizations in two hundred countries are connected to the international interbank system for transmitting information and making payments SWIFT. Russia is one of the three largest operators of SWIFT, and disconnection from it has been threatened since 2014. The reasons are different —it is the annexation of Crimea, the Donbass deadlock and the Skripal case. The most recent is the situation with the poisoning Alexei Navalny. Joe Biden, as soon as he took office as President of the United States, he promised to cut Russia off from SWIFT.

In December 2020 Reuters, citing sources familiar with the plans of the US president's team, reported on Biden's intention to "punish" Moscow for its alleged involvement in a hacker attack on US state institutions. This should lead to “serious economic, financial or technological losses for Russia."

In April 2021 the situation in eastern Ukraine escalated, so the collective West found a new pretext to toughen Russia sanctions. As the head of the leading faction of the European Parliament — the European People's Party — Manfred Weber put it, Moscow "continues the course of dangerous provocations."

Therefore, the US and the EU must give a coordinated response. As measures that "should become real options," Weber suggested "a large-scale freezing of the accounts of oligarchs" and, again, disconnecting from SWIFT.

On the one hand, Russia has its own System for transmitting Financial Messages (SPFS), launched in 2014. All Russian banks and about a dozen foreign banks from the countries of the Eurasian Economic Union (EAEU) are connected to it. After disconnecting from SWIFT, banks will switch to the Russian equivalent. However, for international payments, the SPFS is not yet a fully-fledged replacement, so the impact will be serious.

Experts point out that the volume of Russian export and import operations in Dollars and Euros is significant, and it is impossible to find an alternative for many product groups.

"Disconnecting from SWIFT will paralyze the transactions of Russian banks," warns Ararat Mkrtchyan, chief strategist at the index company Beta Financial Technologies. - Major exporters will suffer the most. They will have to work exclusively with foreign banks to service their operating activities. There will be a lot of intermediaries bypassing the restrictions. The financial institutions of the EAEU countries will especially benefit from this."

"By itself, disconnecting Russian banks from SWIFT means only increasing the cost and slowing down financial transactions between counterparties. Obviously, the traditional chains will be disrupted, and it will take some time to restore them. But it can be done in a week or two," says Oleg Bogdanov, a leading analyst at QBF.

Another thing, the expert adds, is if the freezing of dollar funds of Russian residents follows. Then a panic reaction in the markets is possible. It will take a quarter or two to calm things down, but in the end, financial ties will still be restored.

Sharp currency fluctuations are inevitable. However, after a short period of turbulence, the ruble will return to normal.

And yet the downside of Russia's disconnection from SWIFT suggests that it will not go further than threats. First, SWIFT is a private company that makes money on Russian banks. Moreover, the system is used not only for international transactions, but also for internal interbank transfers. For SWIFT to disable someone, you need an EU decision or US sanctions against SWIFT itself. But in this case, Russia's trading partners — European and American businesses-will remain out of business.

The United States will also have a hard time. First, Washington has only a hypothetical influence on SWIFT, which is headquartered in Belgium. Secondly, Russia can respond with tough sanctions against American banks and politicians.

In turn, Russian Foreign Minister Sergei Lavrov said recently that " Moscow supports the gradual abandonment of the dollar in settlements with foreign partners, as well as from Western-controlled payment systems."

Earlier, Lavrov said that sanctions risks should be reduced by switching to settlements in national or alternative currencies to the dollar.

The Ministry of Foreign Affairs of Russia believes that "the decline in the predictability of US economic policy and the uncontrolled introduction of unjustified sanctions by them call into question the reliability and convenience of the dollar." They also emphasize the importance of promoting " alternative SWIFT and US-independent interbank payment systems."

The Kremlin also commented on the situation around SWIFT. Presidential spokesman Dmitry Peskov did not rule out restricting the use of Visa and Mastercard payment systems in Russia.

Answering a question about their possible shutdown, Peskov noted that many countries impose various kinds of sanctions against Russia.

"This is a rather unpredictable process, so within this process, given such unfriendly, and sometimes even hostile forms of behavior towards us, nothing can be excluded," Peskov said.

On the eve of the Foreign Minister Sergei Lavrov said that Russia seeks to work with its foreign partners to move away from the use of the dollar in mutual settlements and switch to national or alternative currencies. He also called it possible to abandon the payment systems controlled by the West.

At the end of last year, Russian media reported that the US authorities are considering disconnecting Russia from SWIFT as a measure of influence on Moscow.

No matter how the situation develops around this very sensitive issue for Russia, Moscow is already calculating possible steps to smooth out the potential damage. In this regard, there is a rather dramatic experience of Iran, which has fully experienced the deprivation of the possibility of using the SWIFT system on its economy.

EU

Putin reviews Russian military might as tensions with West soar

Reuters

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Russia's President Vladimir Putin waves as he leaves after the Victory Day Parade in Red Square in Moscow, Russia June 24, 2020. REUTERS/Maxim Shemetov

President Vladimir Putin (pictured) reviewed Russia's traditional World War Two victory parade on Sunday (9 May), a patriotic display of raw military power that this year coincides with soaring tensions with the West.

The parade on Moscow's Red Square commemorating the 76th anniversary of the Soviet Union's victory over Nazi Germany in World War Two featured over 12,000 troops andmore than 190 pieces of military hardware, including intercontinental ballistic missile launchers, and a fly-past by nearly 80 military aircraft under cloudy skies.

Putin, who has been in power as either president or prime minister since 1999, stood beside Soviet war veterans on a review platform set up on Red Square.

"Unfortunately there are once again attempts to deploy many things from the ideology of the Nazis, those who were obsessed with a delusional theory on their exclusiveness. And not only (by) all sorts of radicals and international terrorist groups," Putin said in what appeared to be a common denunciation of the West but what the Kremlin said was aimed at the rise of neo-Nazism in Europe.

"Russia will again and again uphold international law, but at the same time we will firmly protect national interests (and) ensure the security of our people."

This year's parade precedes parliamentary elections in September and comes at a time when Moscow's relations with the West are acutely strained over issues ranging from the conflict in Ukraine to the fate of jailed Kremlin critic Alexei Navalny.

The United States and Russia have expelled each other's diplomats in recent months in a series of retaliatory moves and Moscow and EU member states have been involved in a similar tit-for-tat diplomatic dispute.

Sunday's parade follows a massive show of Russian military force near the borders of Ukraine and in Crimea, which Russia annexed from Kyiv in 2014, and an uptick in fighting in eastern Ukraine between Russian-backed separatists and Ukrainian government forces.

Moscow said the build-up, which alarmed the West, was a training exercise in response to activity by the NATO military alliance and Ukraine. It has since ordered a withdrawal of some troops. Read more

Smaller military parades took place on Sunday in cities across Russia and in annexed Crimea, and at Russia's Hmeymim air base in Syria.

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Stalinism or a feat of the people?

Guest contributor

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The Second World War ended almost 76 years ago, but the debate around this topic has not finished to this day. And, if for Russians the Great Patriotic War is a sacred and untouchable page of history, in the Western community a revisionist approach flourishes among different circles, bordering on a deliberate distortion of historical facts and real events – write Evgeny Dumalkin and Alexander Arifov.

The most “fashionable" trend in the last few years has been attempts to lay the blame for the outbreak of the 2nd World War equally on Germany and the Soviet Union, led by Stalin, who is put on a par with Hitler. 

Despite the decisions of the Nuremberg Tribunal, politicians from different countries publicly make statements that not only Nazi Germany, but also the leadership of the USSR was behind the outbreak of war in 1939. Stalin is accused of a "criminal collusion" with Hitler, implying the Molotov-Ribbentrop Pact, and in particular, its secret protocol.

Europe on the eve of the 2nd World War: geopolitical chaos

Another memorable date associated with the defeat of Nazism in Europe, makes us going back to the 1930s of the 20th century and once again analyzing the events that led to the most terrible war.

The regime of the Weimar Republic established in 1919, as well as the disunity of the political elite in Europe, became the fertile ground that nurtured Hitler and the national socialist regime in Germany. 

On one side was the vast and growing Soviet Union with its communist ideology. On the other hand, capitalist Europe, which tried its best to contain the USSR. 

The rise to power of the Nazis in Germany in 1933 further fueled the flames of ideological competition on the continent. The rapidly gaining strength of the political, economic and, of course, the military machine of Hitler gave a chance to establish a kind of «ram" against Moscow.

In the 1930s, the ideology of national socialism was rapidly gaining popularity in Europe - it was seen as the opposite and powerful force to communist ideas.

Such trends in politics, as well as the weakness of international institutions of cooperation - the League of Nations was almost obsolete, gradually losing any practical meaning - characterized the chaos that reigned in international relations at that time.

Hitler actively strengthened the position of Germany, including abandoning any deterrent mechanisms in military development. Britain and France actually condoned Hitler's expansionism by giving the green light to his aggressive policies. The partition of Czechoslovakia, and then its transformation into a protectorate, the Anschluss of Austria, the annexation of Danzig, and finally the Munich Treaty  - all these and many other actions of the German leadership, with the tacit consent of Europe, almost brought the continent to the brink of war. 

On this background, Stalin had his own "giveaway game" with Hitler, which resulted in the Molotov-Ribbentrop Pact with the protocol on the Europe's division.

Both sides had stroke many agreements with Hitler and were sure that he was in their hands, and would go to war wherever he was told. They acted completely synchronously. The Munich Agreement and the Molotov-Ribbentrop Pact are two identical documents in their meaning, so it would be much wiser and more effective to admit that the Second World War was caused by the monstrously inept and short-sighted actions of both sides, but this is hardly possible to acknowledge outside of a narrow community of historians, who already understand everything.

Attempts to make adjustments to the nature and results of the 2nd World War pursue, in our opinion, quite specific political goals of an anti-Russian nature, and not the search for historical truth. It is more relevant and fair to speak out about the USSR people's feat which we are keen to depict on own families' examples.

Feat of the Soviet people

For the Soviet Union, the war with Nazi Germany was an extremely difficult, bloody test. The country has lost, according to some sources, up to 30 million people, including military and civilian casualties. More than 30% of the national heritage has been destroyed. Such damage is not comparable to what other countries, including Germany, have lost.

To this day, historians and researchers, both in Russia and abroad, argue about the tactics of the Soviet leadership, the military command and Stalin personally on the eve and during the war. Different opinions often heard that the losses were excessive. It is claimed that Stalin did not want to provoke Hitler, so there were such high losses in manpower and equipment in the first stage of the war. Other points of view are also expressed, for example, about the notorious "barrage detachments" and the famous order "no step back". 

In any case, even taking into account the miscalculations of the country's leadership and Stalin personally, the Soviet people showed incredible heroism, endurance and perseverance in the fight against German aggression. 

The words "unprecedented feat of the people" conceal incredible strength of spirit, will and devotion to the Homeland. Soviet propaganda added that soldiers used the call "For the Homeland, For Stalin". However, numerous testimonies show that people, first of all, fought for their land, homes and families. It is enough to recall the unprecedented scale of the partisan movement, which was not the case in Europe. 

One would't find a single family in the Soviet Union that has not been affected by the war. Moreover, people cherish the memory of their dead ancestors, pass this memory to their children. 

Our grandfathers told us: "War is a daily and hourly hard work. life in conditions of constant restrictions and deprivations: physical, material, moral, spiritual. There are some examples from the memories of our families' veterans:

  • To be with two children in German-occupied territory, one of whom died in his arms after picking up a child's toy, specially mined by the retreating Germans. To see how the invaders treated the Soviet people — it was not a struggle against the state of the USSR, it was a war with the people, children, women...
  • Once surrounded in the autumn, to sit for almost three days in the swamp, waiting for the Germans to remove the cordon on its banks to then reach Russian troops. Do not give up and pay for a lifetime of chronic kidney disease.
  • Fighting on the other part of the country, to come home in 1943 and personally evacuate the family from the Crimea raging in battles to Orenburg (1500 km).

There was a deep belief in victory, there was an understanding of something higher among those deaths, battles, the horrors of war, our grandfathers told us. It was a war of people who did not lose their human qualities.

A vivid confirmation of this family memory is the holding of the so-called "immortal regiments" processions in the cities of Russia and all over the world, where our compatriots live.

The war marked a sharp difference between the Nazis and the Soviet soldiers. The Nazis, driven by racial hatred and propaganda, brutally destroyed people in the occupied territories, millions of people were driven to work in Germany, were sent to concentration camps. 

The Soviet people, when the liberation of Europe from the fascists began, especially when the Red Army troops came to Germany, did not take revenge and did no evil towards the Germans.  It is enough to recall that Stalin emphasised: "The Hitlers come and go but the German people, and the German state remains."

The Soviet soldiers suffered the main hardships of the war. Of course, someone, especially in the West, can claim that the army was following Stalin's orders and the soldier was driven by fear. But the facts prove that a huge numbers of superhuman achievements and the mass scale of heroism both at the front line and in the rear, both from adults and  teenagers, were the result of the fact that the Soviet people understood and realized that they were defending not only the Homeland, but also the very fact of the future existence of themselves, their children and grandchildren.

Evgeny Dumalkin is the partner of Amaltheya Capital Partners, Moscow

Alexander Arifov is the CEO of Runa Bank, Moscow

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Russia: Summoning of the Russian Ambassador to the EU

EU Reporter Correspondent

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European Commission Secretary General Ilze Juhansone and External Action Service Secretary General Stefano Sannino jointly summoned the Ambassador of Russian Federation to the European Union Vladimir Chizhov (pictured) to condemn the decision of the Russian authorities from last Friday (30 April) to ban eight European Union nationals from entering the territory of the Russian Federation. 

Ambassador Chizhov was informed of the strong rejection and firm condemnation by the EU institutions and EU member states of this decision, which was purely politically motivated and lacks any legal justification.

Secretaries-General I. Juhansone and S. Sannino also recalled Russia's expulsion of Czech diplomats and the executive order of the Russian Federation of so called “unfriendly states”, expressing their grave concern for the cumulative impact of all these decisions on the relations between the EU and the government of the Russian Federation.

They also noted that the EU reserves the right to take appropriate measures in response.

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